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Tax Tips

Supreme Court Overturns Quill Decision! – What Does This Mean?

The Supreme Court today, in a 5-4 decision, came down on the side of the states and overturned the Quill Decision.  This grants states greater power to require out-of-state retailers to collect sales tax on sales to in-state residents.  This is a big deal for states.

At issue was the court 1992 Decision in Quill which established the physical presence for sales and use tax nexus.  That was before the surge of online sales and states have been trying to find constitutional ways to collect sales tax from remote sellers to residents in those states. The Quill Decision stated that those retailers had to have a “physical presence” or “nexus” in the state to be forced to collect and remit sales tax to a state. The Supreme Court said Quill was “out of date”.

States like South Dakota will now be allowed to require sellers that are selling substantial amounts of product into the state to collect and remit sales tax. This may be good for states.  However, the small “mom & pop” retailers would have to collect and remit sales to how many states? We may see litigation regarding these small online retailers about the amount of sales necessary to impose the collection obligation on them.  It may even be on a case by case basis….we shall see!

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You Can Connect To The IRS Website On Your Smart Phone

Do you have a question for the IRS?  You can connect with them securely on your Smart Phone.  The IRS has a mobile App which is IRS2Go.  It is available for free to use.  You can use the app to:

*   Check the status of your refund – Taxpayers can check on their refund status within 24 hours after the IRS receives the electronically filed return or 4 weeks after mailing the return.

*   Make a payment – The app offers easy access to mobile-friendly payment options like IRS Direct Pay.  This offers a free, secure way to pay directly from your bank account. You can also make a credit or debit card payment with this option through an approved payment processor.

*   Find free tax preparation assistance – Eligible taxpayers can access free tax software from their mobile device to quickly prepare and file their taxes and get their refund. You can also file an extension of time to file the return with this app.

*   Get helpful times & information – Taxpayers can use the app to link accounts on social media.  You can watch helpful videos and access IRS tweets. You can also sign up to receive IRS tax tips by email.

*   Stay Secure! – Users can use IRS2Go to create login security codes for certain IRS online services.  This allows you to retrieve codes through IRS2Go instead of using texts.

IRS2Go is available in both English and Spanish.  Call our office if you have questions!

 

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Did You Miss The Tax Deadline!

If you owe tax and will file your federal income tax return more than 60 days after the deadline, you will usually face a higher late filing penalty.  For this reason, you should file your return by Thursday, June 14.

Ordinarily, the late-filing penalty, also known as the “failure to file penalty” is assessed when a taxpayer fails to file a tax return or request an extension by the due date.  This penalty, which only applies if there is unpaid tax, is usually 5% for each month or part of a month that a tax return is late.

If a tax return is filed more than 60 days after the April due date-or more than 60 days after the October due date if an extension was filed, the minimum penalty is either $210 or 100% of the unpaid tax, whichever is less. This means that if the tax due is $210 or less, the penalty is equal to the tax amount due.  If the tax due is more than $210, the penalty is at least $210. This penalty will stop accruing once the return is filed.

Though a tax return claiming a refund is not subject to the penalty, the IRS will not refund any overpayments if the return is filed more than three years after the due date.

If  you have a history of filing and paying the tax on time often qualify for abatement of penalties so if you have this problem, please call our office.  We might be able to help!

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Are You Trading in Cryptocurrency

The Internal Revenue Service issued a reminder Friday to taxpayers that they need to report any income from gains they get from virtual currency transactions on their tax returns.

The move comes after the IRS forced one of the largest cryptocurrency exchanges in the world, Coinbase, to send information on 13,000 of its users to the IRS last month after a legal battle involving the use of “John Doe” summonses.  That mean if you have engaged in transactions involving Bitcoin, Ethereum, and other digital currencies, you are expected to report those gains to the IRS.

The IRS pointed out that virtual currency transactions are taxable by law, similar to transactions involving other personal property.  The IRS issued guidance in 2014 in Notice 2014-21 spelling out the agency’s position on digital currency transactions for taxpayers and tax preparers.

The IRS warned Friday that taxpayers who do not properly report the income tax consequences of their cryptocurrency transactions fact the possibility of tax audits, and could even be liable for penalty and interest charges when appropriate.

Under Notice 2014-21, virtual currency is treated as property for federal tax purposes, so the general principles that apply to property transactions also apply to the 1,500 or so known varieties of cryptocurrency.  That means reporting payments made with virtual currency.

Payments made to independent contractors and other service providers are also taxable and self-employment tax rules apply. Have you been trading in cryptocurrency?

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How To Avoid Tax Traps with Inherited IRAs

An  inherited Individual Retirement Account (IRA) can be a tremendous boon to the beneficiary.  Who can’t use extra money in retirement!  Most inherited IRAs are cashed out within six months of the death of the family member.  If you do cash it out, there is no way for planning tax strategies! Without proper planning, federal and state taxes can take a sizable bite from the proceeds!

Options for Inherited IRAs:

  •  Take a lump sum distribution of the entire balance
  •   Roll the inherited IRA over into a new account and take the distributions over the longer of the life expectancy of the beneficiary or the decedent.

If the account owner died before reaching the date for RMDs (Required Minimum Distributions), the beneficiary has a third option of withdrawing all the funds by the end of the year containing the fifth anniversary of the decedent’s death (The Five Year Rule). In this case, the life expectancy of the beneficiary must be used.

Keep the Beneficiary Designation Up To Date!

Marriage, divorce and the birth of children can change estate plans.  The IRA will pass by beneficiary designation and not the Will.  Please make sure you keep the beneficiary as you want it.

Titling An Inherited IRA:

An inherited IRA must be titled with both the name of the decedent and the beneficiary plus the word “inherited”. For example, one might title an inherited IRA as “Jane Doe, deceased September 30, 2017, F/B/O Jimmy Doe, beneficiary”.  If you just change the name on the IRA, that is a “cash out” so DO NOT just retitle the inherited IRA to the beneficiary. Retitling the account is best done at the brokerage where the decedent held the IRA before the beneficiary rolls it over to his or her own brokerage.

If Decedent Had Turned 70 1/2 Years of Age and Started RMDs:

If the decedent had already turned age 70 1/2 and started taking required minimum distributions, the beneficiary MUST take the required minimum distribution before the end of that year or there is a 50% penalty and you still must take the distribution.

ROTH?

Consider the beneficiary’s age and if there are already ample retirement sources, converting the inherited IRA to a ROTH may be the way to go.

Please call our office BEFORE just cashing out the inherited IRA!

 

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Charitable Giving of your IRA Required Minimum Distribution

If you are age 70 1/2 or more and are required to take an “RMD” (Required Minimum Distribution) from your IRA, are you taking advantage of the option of donating that distribution to your favorite charity? Many of us make charitable contributions during the year.  If you have an IRA and are required to take a distribution because of your age, you can use a QCD (Qualified Charitable Distribution) and eliminate that income.  This QCD option applies only to IRA and not any company plans.  It also applies to inactive SEP and SIMPLE plans.

With a QCD, your Required Minimum distribution can go directly from your IRA to the charity.  This direct transfer takes care of the RMD but it is not included in your taxable income for that year.  There is no charitable deduction since you did not include it the income from the distribution.  Excluding these amounts from income can reduce adjusted gross income (AGI) as well as taxable social security and any itemized deductions that may be limited by that AGI

This QCD option became a permanent part of the Tax Law in 2015. There can be no benefit back to you because of the giving.  If you receive tickets or some small token of appreciation, it could disallow your benefit of the direct transfer so be careful when using this option.  If you have questions or want to learn more on this topic, please call our office.

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